Building an Industry

by Joel Smith & r & & r & May 7, 2001 & r & REPORTER: Does the President believe we need to correct our lifestyles to address the energy problem? & r & & r & ARI FLEISCHER: That's a big no. The President believes that it's an American way of life, and that it should be the goal of policy makers to protect the American way of life. The American way of life is a blessed one. And we have a bounty of resources in this country. -- White House press briefing

Jan. 31, 2006 & r & "And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. We will fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips and stalks or switchgrass. Our goal is to make this new kind of ethanol practical and competitive within six years." -- President Bush's State of the Union address

& lt;span class= "dropcap " & Y & lt;/span & ou're forgiven if you'd never heard of "switchgrass" before the President referred to it in his State of the Union address last month. Few people had -- not even the President himself, it seems. But now, five years after the Bush administration characterized America's oil-hungry lifestyle as a kind of national birthright, the country's oil addicts are jonesing for the stuff.

Switchgrass, you see, can power your car. So can corn, and soy beans, and barley. But though scientists and engineers have been testing and developing fuels that run on renewable resources like these for decades, alternatives to petroleum-derived gasoline have only become water cooler talk in the last few years, during which time everyone from politicians (especially in Minnesota) to chronic hippies (especially Willie Nelson) have jumped on the bandwagon. The latest jumpers are the senators and representatives of the Washington State Legislature. Though they passed a package of bills in 2003, offering tax cuts for those pursuing renewable fuel resources, the craze for biofuels has taken over this year's session. Currently, there are five bills circulating through the Legislature that aim to jump-start a biofuels industry in Washington. One -- House Bill 2738 -- would require that all diesel sold in Washington contain at least 2 percent biodiesel and that all gasoline contain at least 2.5 percent ethanol, with the potential for those standards to rise in the following years.

Like the other biofuels bills, HB 2738 has so far enjoyed broad bipartisan support. (It passed through the House last week and passed the Senate earlier this week.) Some believe the renewable fuels issue could sow some much-needed unity between crop-growing Eastern Washington and the liberal-voting west side. The bill's backers, citing the benefits of lessening the country's dependence on hard-to-get foreign oil, envision an entire state industry of local farmers, crushers and refiners working hand-in-hand to rake in the cash, while Washington drivers fill their tanks with fuel so sweet and blessedly non-toxic it makes babies' tears look like arsenic.

Sound too good to be true?

It might be.

Thirty Years Too Late? & r & While state legislators scramble to shunt money toward the renewable fuel industry, even renewable fuel supporters are skeptical. And for one good reason: There is no renewable fuel industry in Washington.

Take biodiesel, one of the most talked-about options in the biofuels arena. While the non-toxic diesel substitute can be made from any number of vegetable oils, as well as animal fats and waste grease, of the nearly 30 million gallons of the stuff that were sold in the United States in 2004, a vast majority came from soybean oil in the Midwest. The problem is that Washington doesn't really grow soybeans. Nor does it (commercially) grow canola or mustard, other key biodiesel crops. Nor does it have any crushing facilities. And its one biodiesel refinery -- which employs just 12 people at its Seattle plant -- produces less than 5 million gallons of the stuff a year.

"The timing is 20 years late," says Jim Armstrong, with the Spokane County Conservation District. Armstrong, who's known for driving around in the district's biodiesel-run Volkswagen Beetle, says Washington should have started promoting biofuels in the wake of the last energy crisis, in the 1970s.

Or even earlier. Midwestern states have been successful in the renewable fuel industry, he notes, because they've had a viable oilseed industry for 100 years, with all the right crops and almost all the necessary infrastructure. Once they had amassed a surplus of soybean oil and a small demand for the fuels arose, therefore, farmers and producers in those states were ready to take advantage.

Armstrong insists that Washington will have to follow the Midwest's lead to make biodiesel economically viable. "We have to establish an oilseed industry first, and we have to do it separate from biodiesel.... Biodiesel is not the driver for farmers; they don't care."

Making farmers care will mean convincing them they can make money off of the crops necessary for biodiesel -- like mustard and canola, and possibly soybeans. It won't be easy. Seventy percent of what farmers will produce from the crops is meal, which has no use in biodiesel production. And if they can't sell the meal, that means they're only making money on 30 percent of their products. Which means that to stay alive, they'd have to mark up the seeds to crushers by huge margins. Which would be passed on at the pump to consumers, who have precious little patience for high gas prices, even if they are helping to save the environment.

In other words, farmers have to find a high-paying market for that meal, too. Supporters think it's doable. Armstrong points out that there's already a high demand for mustard meal, which "you and I eat every day without even knowing it," in mayonnaise, salad dressings, processed meats, etc. It also has some use as a soil fumigant and pesticide (though the Environmental Protection Agency hasn't yet approved it for that purpose). He says that protein-heavy canola meal, too, has some value -- as a source of feed for dairy and cattle farmers -- but you can't sell it for much. Others point out that some of the oil byproducts of biofuels can be used to make glycerin for soap.

The financial risk is only exaggerated by farmers' past experiences with crops that they were told would revitalize the agriculture industry.

"I get real nervous," says Hal Collins, a soil microbiologist with the U.S. Department of Agriculture (USDA). "The sugar beet industry came into Washington, and that fell through. There were Jerusalem artichokes, and that didn't work out. Straw board -- that didn't work out, either."

But Collins, who has grown fuel crops, or feedstocks, with Washington State University on an experimental farm in Prosser for the last few years, stresses the need for Washington's myriad wheat farmers to diversify, periodically switching their wheat out for other crops. He believes canola could be the perfect rotational crop. And each acre of it could produce around 100 gallons of biodiesel.

Of course, if nobody in Washington has a crusher to turn those crops into oil, who are the farmers going to sell to?

Catching Up to Iowa & r & The ethanol industry is a different story, because you can make ethanol out of pretty much anything, and Washington farmers have plenty of pretty much anything to go around. The U.S. Department of Energy says Washington "has an excellent biomass resource potential," indicating in a 1999 study that it's got an abundance of what it takes -- grains, fibers, field waste, forest waste, etc. -- to make ethanol. (The state ranked 24th out of 50 in terms of available ingredients, or "biomass.")

But it's no corn. Of the 1.8 billion gallons of ethanol produced in the United States each year, "99.99 percent," says Armstrong, was made from corn. That's because the primary fermentation of the sugars and starches in corn yields about 20 percent alcohol. That's like a bottle of Triple Sec. Fermenting cellulosic grain -- the stuff Washington's got plenty of -- yields only around 7 percent. That's more like a strong beer. So because corn starts out stronger, it takes less time and energy to distill it until it reaches 200 proof alcohol. Corn is clearly superior for making ethanol.

And no one grows more corn than the Midwest. In 2005, Washington produced 16 million bushels of grain corn. That same year, Iowa alone produced 2.2 billion bushels of it, turning 360 million bushels into ethanol.

This doesn't mean that making ethanol in the Northwest is futile -- Shell Oil has invested $60 million in a company called Iogen, which wants to build a cellulosic ethanol plant in Idaho Falls. But Armstrong suggests that until someone around here can figure out a way to get more bang out of cellulose, the math won't pencil out.

"With current technology," he says. "It's not going to happen right away. Right now, it's [more] viable to ship from Iowa -- maybe not in the future."

An Olympian Fix & r & That's where the bills floating through the state legislature come in. House Bill 2738 would require that of all the gasoline and biodiesel sold in Washington, a certain percentage would have to consist of renewable fuels. The hippies and anti-Big Oil people like this for the simple reason that it'll mean more biofuel will be available.

But the requirement wouldn't set in until the state's director of agriculture determines that Washington farmers, crushers and refiners can supply the biofuels necessary to meet that requirement. (Washington consumes nearly six billion gallons of diesel and gasoline each year - that would mean it needs to produce 20 million gallons of biodiesel and 117 million gallons of ethanol.) And when the ag director determines that the state can produce even more, that number will be ratcheted up -- to 5 percent biodiesel and 10 percent ethanol.

The bill's sponsor, Rep. Janea Holmquist (R-Moses Lake), hopes that linking oil companies' obligation to provide biofuels with the state's ability to produce them will light a fire under farmers, crushers and refiners alike. "It's such a win-win for the entire state," she says. "It would create a new commodity market that has the potential to create thousands of new jobs in this state."

Holmquist and other legislators often point to Minnesota. As of last year, all gasoline sold in that state is required to contain 10 percent ethanol; by 2013, that number will jump 20 percent, Holmquist says. Minnesota's ethanol fetish has netted it 2,500 new jobs and $600 million in income -- "So the potential is just tremendous," she adds.

A few other bills in the Washington Legislature take the incentives even further. One proposes to loan $2.75 million each to three biofuels projects -- in Spokane County, Columbia County and Odessa. A fourth project, in Sunnyside, would receive $750,000. If approved, the money for the Spokane County project would be loaned to Palouse Biodiesel (which would use it to build a seed crusher) and be managed by the Spokane County Conservation District.

Another bill proposes the establishment of a $100 million fund, which would dole out similar low-interest loans to further research and development of new and renewable energy resources.

Industrial Evolution & r & Fred Fleming doesn't sound as happy about all that as he should be. After all, he's part of the group in Odessa that stands to benefit if that $9 million loan package goes through. (The House passed it through to the Senate on Jan. 30.)

The founder and owner of the Reardan Seed Company is working with an Odessa co-op to build a facility that would crush up to 150 tons of oilseed crops a day and ship nearly four million gallons of oil to Seattle Biodiesel each year. If the renewable fuels standard (HB 2738) and the other bills also pass, he says, "It's gonna be like a full moon and everybody's gonna be out howling at [it]." With funding, he believes they could begin crushing by December.

Still, like many critics of the renewable fuels standard, he worries that the government could help too much. "What you're doing is setting up an industry that's over-subsidized. When the subsidy goes away, then the market goes away, too."

Republican Representative Ed Orcutt agrees. Last month, he told the Spokesman-Review that the new standards "will cut the legs out from under those who are trying to do this in the private sector ... in a market-driven manner."

"I think you need to do everything positive to get in-state development," Fleming says. "Tying it to in-state feed production is crucial, but it's not the bottom line." He believes that cheap Iowa corn and cheap Canadian mustard seed will only force Washington businesses to compete more aggressively.

His concern is not academic, he adds, noting that Washington's so-called biofuels industry is still somewhat precarious.

"If you were truly an investor who was looking for low risk, this is not a place to put your money," he says. "The only reason that people are doing this is that the government has put together some tax incentives for purchasing biofuels. At this present time, biofuels, on an open market? It doesn't pencil out."

In other words, despite all the buzz about switchgrass and ethanol and cars that can run on French fry oil, the biofuel revolution is still a ways off.

Not only do farmers need to be convinced they can turn a profit on fuel crops, but in a part of the state where wheat is king, they'll have to learn how to grow them, too. And they'll have to know there are crushers ready to turn their products into oil. And those crushers have to know there are refineries that'll turn it into fuel.

And refiners have to believe there are drivers who will buy the finished product. But that's the area where biofuels watchers sound most assured.

Jim Armstrong believes that Washington could, with its limited corn supplies, make 50 million gallons of ethanol today and "that's [just] a drop in the bucket. There's a huge, huge, huge market for it -- one that we could never fill. The capacity for biodiesel nationwide right now is 200 million gallons; the market for petroleum is 75 billion gallons."

The problem is in jump-starting the supply chain. Governor Christine Gregoire believes the government's going to have to get involved.

"We need to seize the crisis as an opportunity," she told Seattle Weekly, referring to the volatile petroleum market and the wars it seems to engender. "Maybe this time we can come together and seize a common agenda. If we wait another legislative session, the crisis may be gone and apathy will set in."

Asked where his plans for a crusher in Odessa will be if the government gets apathetic, Fleming says, "Probably tits up," adding with a chuckle: "That's an old farming expression."

Sun., Aug. 2, 9 a.m.-10 p.m.

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